What are this year’s pressing issues for UK ODA

The last few years have been tumultuous for UK official development assistance (ODA).

In 2020 cuts to the ODA budget were announced, 2021 saw the first year of a reduced budget from 0.7% of GNI to 0.5%, hitting low-income countries the hardest, and 2022 saw even further cuts to overseas spending due to a spike in in-donor refugee costs counted as ODA.

While we are waiting to see the numbers for 2023 and how the government plans to deliver the White Paper on International Development, what issues will we look out for as 2024 progresses?

Back to basics?

The very basic principles of UK ODA centre around its contribution to reducing poverty. Yet, cuts to the aid budget disproportionately affected the poorest countries. According to analysis by Development Initiatives least developed countries (LDCs) and low-income countries (LICs) have seen a 55% decrease in ODA since 2019, with assistance flows to these countries only making up 10% of total UK ODA in 2022.

However, the White Paper gives some hope, acknowledging once again that “poverty reduction is the primary purpose of ODA programmes”. It even commits to spending at least 50% of all bilateral ODA on LDCs, and that this focus will inform all ODA spending. The planned budget for 2024/25 as set out in the FCDO Annual Report and Accounts seems to recognise this, with plans to increase spending across Africa by 111% between 23/24 and 24/25.

As we wait to see the ODA numbers for 2023, we are yet to see how this plays out in practice.

What we do know is that the Government does not plan to return to 0.7% anytime soon and, while any increase in the ODA budget is positive, this must be judged against the backdrop of the significant impact of previous aid cuts. Ultimately, even an increase in total ODA is meaningless if decisions on how to spend it and what to count as ODA lead to further cuts to the poorest countries.

What is counted as ODA?

The headline from ODA statistics for 2022 was the high amount of ODA spent on in-donor refugee costs, and the costs of assisting refugees in the donor country, which OECD DAC rules allow to be counted as ODA. The UK has taken full advantage of this, and in 2022 the Home Office spent £3bn (28% of the total ODA budget) on in-donor refugee costs, making the UK the largest recipient of its assistance. Meanwhile, the FCDO only spent 59.7% of the ODA budget.

Spending on in-donor refugee costs will likely be smaller in 2023 and beyond, given that the UK’s immigration policy will reduce the number of asylum seekers arriving in the country and the DAC rules limit counting these costs as ODA to the first 12 months after arrival. At the same time, the White Paper has confirmed that the UK will continue to count international climate finance as ODA, and while in line with DAC rules, it is in contrast to the Paris Agreement’s reaffirmation of the additionality of climate finance.

Such decisions on what is counted as ODA are political. Even though the UK operates within the DAC rules, taking these costs out of the ODA budget means there is less budget for low-income countries. We will have to watch closely how the current and future government plans to draw on the ODA budget.

Private finance as a silver bullet?

Amidst a 4 trillion USD annual finance gap to achieve the Sustainable Development Goals, private sector instruments (PSIs) are seen by many as a tool to mobilise more money for development. The UK is no exception, and in a recent speech by Minister Andrew Mitchell, he described the private sector as “the engine, not the enemy, of development,” reaffirming the centrality of BII to its development offer. Indeed, the UK is the largest provider amongst DAC members providing ODA via PSIs.

There is growing concern that new OECD DAC rules on reporting PSIs as ODA, intended to support private sector investment in development countries, are allowing donors to count their commercially viable investments as ODA, meaning they can score ODA while making money. Some even argue that this will result in a decline in “real” assistance and result in fewer grants to the poorest countries.

While the budgets of many countries are squeezed and the need for assistance is growing around the world it is easy to see why Governments turn to PSIs in the hopes of bridging these gaps. This is a debate we will have to follow closely and scrutinise how the UK government is using these tools to ensure it is contributing to the eradication of poverty.

More to watch

There are many more issues we will have to closely watch. International climate action has been continuously set out as a UK priority, but, as mentioned above, climate finance will continue to be counted as ODA, increasing the pressure on a limited, smaller pot. Equitable partnerships and locally led development are a welcome focus in the White Paper for the delivery of UK development programmes, but it remains to be seen how this will be achieved.

2024 will also see a replenishment of several multilateral pledges, including the World Bank’s International Development Association resources, which will shed light on the UK’s commitments to multilaterals and multilateralism.

The White Paper has given us some direction for the future of ODA, though has also been vague on its delivery. More importantly, we will see a general election in the next 12 months. We will closely watch how any new government plans to use the ODA budget, and when they might plan to bring it back to 0.7%.